The best mortgage rate for borrowers with only a 5 per cent deposit is 3.79 per cent, down from 4.64 per cent in October last year.
The number of mortgage deals available to people with only a small deposit has soared by more than a third, research showed today.
There are currently 182 different mortgages on the market for people with only a 5 per cent deposit, up from 141 in October 2014.
At the same time, both the average and the best buy rate charged on the mortgages have fallen to their lowest level since the recession, according to Genworth and Moneyfacts.
The best rate on the market for one of the loans is now 3.79 per cent, down from 4.64 per cent in October last year, while the average rate on a two-year fixed rate loan is now 4.79 per cent, compared with 5.05 per cent a year earlier.
Overall, there are now 57 per cent more mortgages for people with only a 5 per cent deposit than there were in January last year, when the Government’s Help to Buy mortgage guarantee scheme started to encourage high loan-to-value (LTV) lending.
There are also more 95 per cent LTV loans available than at any time since the start of the recession, and over four times more than the 43 that were on offer when the market hit a low between August and October 2013.
But while the Government’s Help to Buy scheme helped to kick-start the market for people borrowing a high proportion of their property’s value, lenders are increasingly confident to offer the loans without government support.
Only one in three 95 per cent LTV loans were backed by the Help to Buy scheme in January.
Simon Crone, Genworth vice president - Mortgage Insurance Europe, said: “For many aspiring first-time buyers, raising a deposit of 25 per cent is simply not an option, so the growth of 95 per cent LTV products is a welcome sign.
“Help to Buy has clearly restored confidence among lenders to start offering these loans after a severe drought during the recession.
“Even so, the Government scheme still accounts for a third of products and questions remain in the longer term about how competition will fare when Help to Buy ends.”
But despite the fall in interest rates being charged on 95 per cent LTV loans, borrowers are still being charged a significant premium for borrowing a high proportion of their property’s value.
The price gap between the average two-year fixed rate mortgage at 75 per cent LTV and at 95 per cent LTV stood at 2.78 per cent in January.
As a result, someone buying a home for £150,000 would pay an average of £816 a month in mortgage repayments if they put down a deposit of just 5 per cent, compared with monthly payments of £477 if they put down 25 per cent of their home’s value.
The difference in repayments adds up to a total of £4,068 across the course of a year.